Heres an update, finally got her running again last night. I ended up taking the harmonic balance off, the timing cover off, replacing the timing chain and sprockets, cleaning and degreasing all of the sludge in there, painting up the cover and oil pan and such, rebuilding my balancer and reinstalled everything. As this went on I also replaced my intake manifold, cleaned and painted my valley cover replaced my transmission fluid and added a cooler, and replaced the radiator. So, yeah, took my about 5 months but was completely worth it.
So far not much water in my oil (See last paragraph)
I'm thinking the water in the oil problem was my fault. Probably got in through a busted road draft tube gasket in the valley cover when I flushed the block with a hose. Man I feel stupid.
Anyway, as she's been running the past few days, I've noticed very small trace amounts of "milky" oil on my dipstick. Not much, but it's there.
Is this the residual contaminated oil that is being flushed out of orifices by the new oil? I have to say, I'm pretty paranoid. But overall the oil looks very clean and healthy.
